Post New

There’s a ton of noise in the media right now about the US negotiating with Iran for access to the Strait of Hormuz. While many are understandably skeptical, given that Iran said there have been no negotiations, I think the situation is actually much worse for the US than the market is currently pricing in.

Here are my four big predictions:

1. The S&P 500 (currently at 6400) is going to be substantially lower by May 30. I know, calling short-term moves is usually a fool’s errand, but the disconnect here is too big to ignore.

2. Iran’s closure of the Strait to US-related trade will last at least six months. Almost no-one is forecasting that now - the talk is whether it will be just days or a few weeks. During these 6 months China and Iran-friendly nations will keep their access, but anything with a US link is going to be made illegal by Tehran. From their perspective, the higher shipping costs hitting everyone else are just a way to receive part compensation for the damages caused by our non-strategic, illegal (and profoundly immoral, which is often left out) bombing.

3. Access through the Red Sea will also be shut down by Yemen on and off for the next six months. There is market talk that this is a long-shot but bad possibility - but I'm putting it as a definite. This creates a massive "dual blockage" effect. Usually, the Red Sea acts as a safety valve when Hormuz is not available - without this safety valve, the economic fallout gets amplified significantly.

4. The US will keep up the bombing campaign and Iran will keep retaliating with proportional force. The media is seriously lowballing the combined military tech and willpower of Iran, Yemen, the Iraqi resistance, and Hezbollah. Plus, our so-called democratic Western leaders still don't seem to get that Iran’s government is fundamentally stable and isn't just going to fold.

The US is left with two real options:

Option 1: Capitulate. This is the only real path to peace.
Option 2: Escalate. An Iranian collapse isn't happening, so doubling down just leads to more trade destruction than anyone expects.

My verdict on the above? History says the US won’t take the "L" on Option 1, so they’ll go with Option 2. Here’s how I’m looking at the "fun" part.. the actions investors can take:

Actions to Consider

Build Cash: Increase your cash exposure for the next two months (until May 30) or until the S&P 500 drops 15%. This isn't necessarily calling the "bottom" but I'm using 15% as an actionable cushion. Even a 20% haircut from 6400 only puts the CAPE ratio at 20.. which isn't a "fire sale," it’s just the 20-year average.

Selective Holdings: If you absolutely have to stay in the market, a few names might actually benefit from this chaos:

TRMD: Strong fundamentals; they run product tankers between Europe, the US, and Asia.

EQIX: Could act as an emergency host for data moving out of Gulf State war zones.

NTR: Set to capture phosphate price spikes and benefits from a sulfur cost advantage.

CNQ: This is a pure play on the narrative. Their assets are all in North America (with tiny exposure in the North Sea/Africa), so they have zero physical risk from a Middle East blockade but get 100% of the upside when oil prices spike. The forward earnings look ready to explode.

The Exit Plan: Plan to move back to your original portfolio once we hit that May 30 window or the 15% drop. These aren't necessarily "forever" holds.. just ideas for those who see the same thesis playing out.

The Reality of the US Predicament:

If we’re being honest, the US bombing campaign is essentially state-sponsored intimidation. If you look up the definition of terrorims, the first result Google gives is "the unlawful use of violence and intimidation, especially against civilians, in the pursuit of political aims." Well sounds like exactly what we are doing to Iran whilst cheering for regime change. Let's be honest at another level - it is terrorism. The administration calls it "regime change" because that sounds better on the news, but the goal is the same: use extreme violence to force a political shift.

The problem? It’s backfiring. Just like a foreign power bombing the US would only make Americans more patriotic, this has unified Iran. Domestic support for the government is higher now than it was before the first strike.

The US is also running into a literal wall - the most important military targets are deep underground. Frustrated by the lack of progress, the focus has shifted toward civilian infrastructure. This doesn't trigger a revolt; it just reinforces the resolve of a population that includes 600,000 soldiers and millions of motivated civilians. If this turns into a ground war, the US is going to face a level of "real war" (trenches, heavy bombardment, veteran commanders) that it hasn't seen in decades.

Ultimately, the idea of "air dominance" feels like a myth. US planes aren't even flying over Iranian airspace without getting targeted. Between the layered leadership of the resistance and the overwhelming support from the Muslim world (regardless of what bribed Arab monarchies might say..) the US is in a much tighter spot than the markets realize.

Anyway I have fallen to the dark side in giving a short-term market prediction of the S&P500 (being at least 15% some time in the next 2 months, which can be used a trigger to re-enter, or wait the entire 2 months and enter regardlessly). At least the theory can can be tested not to far way!

My most humble prediction: if there is a new equilibrium possible a year from now which is relatively calm, it will be with the world agreeing (capitulating) to Iran running the strait as cash toll booth. $1-2m per passage, and nobody shooting.

As for financial markets, there does seem to be a lot of cognitive dissonance about. No matter what the price is, I suspect disaster insurance is underpriced. I might look for an opportunity to allocate 1%, maybe 1.5% of my portfolio to such things, with the central expectation that I'll lose it all. Not as a hedge, who needs those? But as a calm wager that might (just might) have a big payoff. A bubble is a terrible thing to waste, but so is a crash.

Jim

I think we are close to the bottom when we get these posts.

I think we are close to the bottom when we get these posts.

You could also look at it the other way. Mr Powell just mentioned that he thought there was no threat of "private credit contagion" that could spread to the wider financial system.

Presumably the reasoning has something to do with a permanently high plateau... : )

Jim

My most humble prediction: if there is a new equilibrium possible a year from now which is relatively calm, it will be with the world agreeing (capitulating) to Iran running the strait as cash toll booth. $1-2m per passage, and nobody shooting.

I concur with Jim's thoughts - with a political exception. It will not be an actual toll booth - that would violate the freedom of the oceans with impacts far beyond the Hormuz Strait. It will be fashioned around what Turkey does with the Turkish Straits - charge a fee for services:

"Turkey has significantly increased, and now annually updates, transit fees for merchant ships passing through the Bosphorus and Dardanelles straits (Turkish Straits). As of July 1, 2025, the fee rose by 15% to $5.83 per net ton for non-stop, international transit. These fees cover lighthouse, rescue, and medical services under the Montreux Convention."

That way, each side can claim victory, the additional transportation costs won't upset the world economies, and those involved will both have found an exit route.

What this doesn't address is the prior Iran leadership's desire to destroy Israel with an atomic weapon. Now unlikely to change. A centuries old war. Will the US/USSR/RUSSIA "mutual destruction" stand-off still work?

I don't think the Israel/US can capture Iran's enriched uranium via ground combat, or destroy it through air power. Too small an amount to hide in a big country. Too large a country to defeat and occupy.

That's where the negotiators must somehow find a middle ground.

I agree with most of Andromeda's points, but the US isn't suffering because it can't get it's hands on Arab oil -- those shipments wouldn't be due to arrive yet-- it's suffering because of high oil prices due to other not being able to get their hands on Arab oil, and the resulting worldwide tightening of supply.

I think if the straight is open enough that passage is assured for the main customers of Arab oil - China, India, Japan, and South Korea, then it lifts the global price pressure that's causing high oil prices. The fact that US and maybe Panamanian-flagged ships can't cross is a problem for certain shipping firms, sure, but not a huge world-wide problem for the price of oil.

You can see here: www.marinetraffic.com what flags each tanker stuck in the Persian Gulf flies, and watch the ships that sometimes cross the straight.

But, the 1973 oil embargo prevented oil shipments to the US from Arab countries, and reduced total global output by 7% for 5 months, and sparked the stagflation of the late 1970's. I fear this war may already have impacted oil transfer facilities to an extend that it'll have a similar impact (3-4% of global capacity for a year or longer?). Added to that, the Houthis, a fighting force within Yemen, but not supported by the Yemen government, was able to keep the Red Sea closed for a majority of shipping traffic for a year. How much more could Iran fighters, *with* support of the government do in the straight of Hormuz.

My main bet to counterbalance the damages from high oil prices leading us to a period of stagflation is investments in oil companies, Occidental Petroleum (OXY), and Exxon (XOM). Oxy because it was a Berkshire purchase long ago, and has US-based oil production, and XOM because it's global and earnings increase with increased oil prices.

I think we are close to the bottom when we get these posts.

Under normal circumstances I would agree, but these are anything but normal times. The war (I’m sorry, excursion) is being run by the seat of his pants, with all the attention of an ADHD toddler, and it’s not beyond belief that he could just say “Mission Accomplished” and quit tomorrow. Or, if Bibi whines, add in another 20,000 troops and invade Kharg Island. Or possibly Saudi Disneyland.

The market, which has far too much money on its hands and seems uninterested in fundamentals, will go up when it wants and down when it wants, occasionally in line with important pronouncements and often not.

Oh smart one Goofy, what are you doing?

Nothing. I have a fat slug of Berkshire, a somewhat smaller pile of Costco, and a whole bunch of oil, mostly Exxon but some other, smaller players too. A stable foundation on which to lay my plahyground. The other stuff (CVS, Weyerhauser, DG, etc. is too small to matter, as are my shorts: Tesla, Palantir, and NVDA, two of which are green and the other just barely bubbling under.

The ones I’m having fun with are my drone ETF, DRNZ, and defense ETF SHLD, both of which I should have hit harder. The ones causing me angst are my pot ETFs, WEED and MSOS. I was sure those were “to the moon, Alice” but have not turned out to be. Ah well. Who would have thought people didn’t want to get high during a war. Excursion. Whatever.

Executive summary: It’s like betting on the Mets. You have no idea what you’re going to get, what they’re going to do, how it’s going to come out - but after it’s all over you’ll probably be OK.

CNQ purchased 2022
SU purchased 2020
XOM purchased 2025
MPC purchased 2020
EPD purchased 2025

“have been belly, belly good to me”.

We will be looking for distressed sectors sure to be happening during 2026 - 2027. Let’s hope Berkshire gets big opportunities for its cash pile, too.

Note: The following could be a statistical anomaly and thus you should not make any decisions based on this information. There is a niche sized local B2B manufacturer of construction/renovation specialty products and it’s CFO recently told me 2026 first quarter months of January, February and March were each the worst net sales for those respective months going back nearly 25 years. This is following a healthy 2025 4th quarter sales numbers for this business.

What are you seeing with your local businesses?

Uwharrie

high percentage of helium product via Hormuz. critical to semicon manufacture .

Andromeda's theses seems correct in a rational world .so far as one can predict Trumps actions we are in an irrational world , so higher than normal cash reserves either via brka/b or brokerage is my "solution". Am at around 20% atm. usually less than 3-5%.

Helium, semicons, AI

https://www.scientificamerican.com/article/the-ira...

why dont the allies go into the "kill box" and clean up Trump's problem....(heavy sarcasm)

Today's Times of London :

https://www.thetimes.com/world/middle-east/article...

"Oh smart one Goofy, what are you doing?"

Here's what I'm doing...... Nothing in the portfolio itself! That's just sitting there. I am however sitting on a lot of cash which I am rolling in three month treasuries. Because it is difficult to match up blocks of treasuries with the exact amount of cash on hand I am buying Berkshire with the leftover cash that doesn't match up if the price is below $490 (what I deem getting at least a small discount). Most of the purchases have been in the low $480's and 70's. This way I'm getting a modest return on my cash and plotting continual long term investments while a buffoon is at the helm of the world's largest economy and military!

Jim said: "No matter what the price is, I suspect disaster insurance is underpriced. I might look for an opportunity to allocate 1%, maybe 1.5% of my portfolio to such things"

Curious, if you buy S&P 500 puts, how far out and how far OT? Would buying farther out VIX futures be a good alternative?

No matter what the price is, I suspect disaster insurance is underpriced. I might look for an opportunity to allocate 1%, maybe 1.5% of my portfolio to such things, with the central expectation that I'll lose it all.

What would you regard as acceptable disaster insurance?

Tom

What would you regard as acceptable disaster insurance?

Well, bear in mind that I'm thinking of "what people are wiling to pay for hedging a financial portfolio against a disastrous fall in prices". For those closer to falling bombs there is entirely different type of disaster to consider.

On the financial front:

Occasionally the market drops a fair bit, gradually or suddenly. Sometimes the months before that fall are characterized by things like valuation levels considerably higher than usual, rising interest rates, bubble behaviour in certain areas of the markets. As the time draws nearer you sometimes see poor market breadth: more stocks hitting new lows than new highs, for example. At some point it will be more than 3-5 months since a new high was hit, (after that market returns are on average weak), so no recent evidence that the prior bull market is still alive. It has been about 2.2 months so far. None of these omens is definitive, you can have those sort of conditions for ages, but they are certainly things that are frequently seen before market tops, and they are certainly things that have some parallels in this year.

So, maybe a bit of a speculative "lottery ticket" purchase of insurance might pay off. Not to hedge a portfolio...who sensible cares much about the market to market value of a portfolio?...but just as a way to make a buck, maybe.

I would assume that whatever you spend on this will more than likely be a total loss. But, with a bit of luck, you might be able to pick some things with potentially high payoffs, more than enough to make it worthwhile to place a wager.

My thinking was buying out-of-the-money put options against various individual stock names that seem likely to crop more than average if there are any serious problems seen in the markets. Added during bullish moments over the next couple/few months, gradually. With this strategy (unlikely simply shorting stocks) you don't have to be right on all your picks...you lose a small amount on the few that rise, but you can make quite a lot, often 10x, on the ones you pick correctly.

I tend to buy such put options in pairs. For example, buy one 20% below current price and an equal number at (say) 40% below, against the same security expiring at the same date. I don't really want to wager on drops of more than 40%, they are a bit of a long shot, so I can use the premium from those low-strike ones to help pay for the high-strike ones. At first this sounds insanely risky, who would write put options? But it's entirely safe so long as you close them at the same time. If/as your low-strike ones start losing money, the high strike ones will be making more money. So never close the high strike ones first.

I sometimes buy at multiple strikes, at least two contracts at each strike. The time value of an low-strike put option is at its highest the first time the stock price falls to that strike, so I tend to close one of each pair at that point, so the remaining one is "free" insurance after that. Since this involves trying to make a profit on the time value, I tend to pick quite long dated put options for this kind of play--a certain percentage jump in time value is nicer if the time value itself is big. Then close all remaining ones at all strikes fairly quickly when you have a hunch that the bottom is in, even a temporary bottom. There is nothing more annoying than making a mark-to-market bundle on this kind of put option, then giving it all back when the market rebounds.

Note, to repeat, you'll probably lose all the money you put into such a strategy. It's probably not prudent capital allocation. Never stops me, though, because I'm slow learner. On rare occasion, it is a lot of fun...September 2008 was among my all time best months ever because of my hedging. The reason I like it is that it's a thing that pays off with ready cash precisely when it's a great time to go shopping for great stocks on sale.

Jim

What would you regard as acceptable disaster insurance?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

[Y]ou'll probably lose all the money you put into such a strategy. It's probably not prudent capital allocation. Never stops me, though, because I'm slow learner. On rare occasion, it is a lot of fun...September 2008 was among my all time best months ever because of my hedging.

Thanks Jim. I appreciate your elucidation of the strategy, but I'm afraid it's a bit too complicated and attention-demanding for me. I was hoping for simple ownership of some value stocks that might mitigate a negative plunge. Thus far I've been relying on Berkshire's steadily increasing IV for a somewhat delayed recovery.

I must add that if you're a 'slow learner' then I'm fast in reverse. I suppose at age 85 that's not uncommon.

Tom

I tend to buy such put options in pairs. For example, buy one 20% below current price and [sell] an equal number at (say) 40% below, against the same security expiring at the same date. I don't really want to wager on drops of more than 40%, they are a bit of a long shot, so I can use the premium from those low-strike ones to help pay for the high-strike ones. At first this sounds insanely risky, who would write put options? But it's entirely safe so long as you close them at the same time. If/as your low-strike ones start losing money, the high strike ones will be making more money. So never close the high strike ones first.

Maybe I’m misunderstanding this, but it only makes sense to me if I add the important word I have provided above. Is that what you meant?

Regards, DTB

Maybe I’m misunderstanding this, but it only makes sense to me if I add the important word I have provided above. Is that what you meant

Yup, typo, you just beat me too it.
Sorry!

Jim

I must add that if you're a 'slow learner' then I'm fast in reverse. I suppose at age 85 that's not uncommon.

Not to worry...the most important thing in the post is "you'll probably lose money on this". Not much reason to ponder the rest!

Here's another thought at the other end of the simplicity spectrum: sell a bunch of stuff and buy a pile of WIP, the safest single click security I can think of. It's a diversified basket of inflation protected bonds issued by a lot of different governments, other than the US. If you have no fears for the US dollar, buy some TIP too, the US-only alternative. Mix to taste, garnish with a twist, serve chilled. Remain chill.

Short of a major meltdown of the financial system itself (not just the things traded in it) it's hard to see how this (WIP) could lose much. Even if a country or two fudges their inflation figures, it's unlikely they all will. It even has a positive real yield, paid monthly. High return? No. Safety? Yes. Considerably better than, say, a gold ETF.

Jim

[S]ell a bunch of stuff and buy a pile of WIP, the safest single click security I can think of.

Thanks again. I've already done some of that, at your earlier suggestion. My main question about WIP is that it appears to have a rather bleak long-term performance record. I suppose that's less significant when the objective is simply to keep from getting your ass royally kicked.

Tom

For the US market, long term potentially, the biggest danger is the US dollar lost its petrodollar status , per Iran’s demand oil passing the strait must be traded in Yuan or other currency, and the realization of the GCC countries that the US can’t be trusted and it’s time to get rid of dollar. There won’t be recycled dollar coming back to support the US market.

My main question about WIP is that it appears to have a rather bleak long-term performance record. I suppose that's less significant when the objective is simply to keep from getting your ass royally kicked.

It's probably better than you think. WIP has a bunch of moving parts going on, and they're not all obvious.

One thing is that, rather obviously, it's a collection of non-US currencies, but is quoted in US dollars. The US dollar is a currency with one of the greater variability ranges. For example, the USD soared about 21-22% in 2021-2022, so WIP seems to have crashed when measured in dollars, but of course it was holding its value and offering a return in terms of real purchasing power. It's just that the yardstick changed size. The dollar fell in 2025, and WIP seemed to soar--again, measured in dollars of variable size.

Second, interest rates were tiny or negative all around the world a few years ago. They always have some fraction in bonds of moderately long duration, so the trend of globally rising rates hit their asset value to a certain extent. Since we are now in a regime of globally higher real rates, this problem is pretty much in the past. (of course, rates could soar even more, but that would probably be in the face of inflation which these bonds are designed to protect against reasonably well...). Yields for a purchaser today should be pretty good.

Lastly, what's really hard to get your head around, is the way that inflation protected bonds work in various countries. Your return might show up as a capital gain, or as an increased coupon, and you never know which. So over time the fraction of the return of WIP coming from coupons varies with the interest rate cycles. So if you're looking at a long term chart, be sure to check one that includes reinvested dividends. Stockcharts.com is a site that includes dividends by default. They also let you do a comparison chart with $USD, so you can see how much of the price swing is really just the dollar going up and down.

All that being said, the return is likely to be low. This is not a "get rich" kind of thing, it's a "stay rich" kind of thing. Given the level of asset preservation that it offers, it's remarkable that it offers a positive real yield at all rather than having to pay for the privilege. I met with some private bankers recently to see if they could clone it for me, or a simplified version. WIP itself is very tax inefficient for me. The underlying government bonds are tax free, and I have no income tax where I live on this type of asset, but because the WIP structure is domiciled in the US, the US takes 30% off the top which I can't credit against anything.

FWIW, average yield-to-worst among the holdings is currently 7.07%. But given that these are inflation protected bonds, I really don't know how they calculate that. The average coupon is only 1.96%, so it seems the bulk of the forward return is showing up as rising NAV. If you check the coupon yield, it is substantial but has been trending steadily downwards, again because of the point in the cycle.

Jim

really hard to get your head around

You can say that again. Thanks for the excellent elucidation, and for your generosity in informing us of something that's beneficial to others, though not to you.

Tom

<<I tend to buy such put options in pairs. For example, buy one 20% below current price and [sell] an equal number at (say) 40% below, against the same security expiring at the same date. I don't really want to wager on drops of more than 40%, they are a bit of a long shot, so I can use the premium from those low-strike ones to help pay for the high-strike ones. At first this sounds insanely risky, who would write put options? But it's entirely safe so long as you close them at the same time. If/as your low-strike ones start losing money, the high strike ones will be making more money. So never close the high strike ones first.>>

Maybe I’m misunderstanding this, but it only makes sense to me if I add the important word I have provided above. Is that what you meant?

Sounds like a "bear put spread" to me - https://www.investopedia.com/terms/b/bearputspread...

Post New

Index Investing FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.